Lovesac, Ciena Plunge After Poor Earnings Show

Good morning. It's December 12th, and today, we’ll look at the reason behind Ciena, Lovesac, and Adobe’s poor earnings and explore one biotech stock that has more than doubled itself in premarket trade.

Previous Close 📈

Stocks ended mixed on Tuesday, with the Dow Jones Industrial Average falling 99.27 points (-0.22%), while the S&P 500 gained +0.82%. The Nasdaq Composite led gains, surging 347.65 points (+1.77%) to finish at 20,034.89, fueled by strong performances in the tech sector.

Futures

U.S. stock futures are trending lower today morning. Dow futures are down 91 points (-0.21%) at 44,131.00. S&P 500 futures are trading 11.75 points lower (-0.19%) at 6,081.00, while Nasdaq-100 futures have declined 61.75 points (-0.28%) to 21,731.75.

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What to Watch

Ciena (CIEN), Liquidity Services (LQDT), and Lovesac (LOVE) will announce their quarterly earnings this morning before the market opens.

Keep a close watch on three important reports that will be released at 8:30 a.m. ET, including Initial Jobless Claims for December, the Producer Price Index (PPI) for November, and Core PPI for November, all providing critical data on inflation and labor market trends.

After the market closes, Broadcom (AVGO), Costco Wholesale (COST), and RH (RH) will also report their results.

Furniture

Lovesac Shares Slide 20% After Q3 Sales Decline

Lovesac shares dropped nearly 20% in premarket trading today due to disappointing Q3 results. The furniture company’s net sales is down 2.7% year-over-year in Q3 FY25, reaching $149.9 million. Its net loss has widened to $4.9 million, or $0.32 per share, compared to $2.3 million, or $0.15 per share, in the same period last year.

While gross margin has improved by 110 basis points to 58.5%, the quarter saw challenges, including an 8.3% drop in omni-channel comparable sales.

Showroom sales are down 7.8%, though internet sales have grown 12.1%, reflecting shifting consumer shopping behaviors. Lovesac offset some of these declines by adding 28 new showrooms over the past year.

For fiscal 2025, the company projects net sales between $660 million and $680 million, with net income ranging from $4.5 million to $12.5 million, signaling potential recovery in Q4. Lovesac's balance sheet remains strong, with $61.7 million in cash and no debt, providing financial stability amid ongoing operational challenges.

Networking

Ciena Corp Misses Market Expectations Despite AI-Driven Growth Optimism, Shares Fall

Ciena Corporation’s fourth-quarter results announced today are short of analysts' expectations, which is causing its shares to fall by nearly 5% in premarket trade. The company’s earnings per share (EPS) of $0.54 is a big drop from $0.75 a year ago and well below the consensus forecast of $0.65.

Revenue for the quarter is $1.12 billion, which is a slight 0.5% decline year-over-year and is largely in alignment with analyst estimates. However, at 41.6%, the adjusted gross margin is much lower than the projected 43.8% and last year’s 43.7%.

Ciena’s Networking Platforms segment delivered $859 million in revenue, slightly ahead of estimates, with Converged Packet Optical revenue showing a notable 4.2% increase to $779.6 million, exceeding expectations.

CEO Gary Smith expressed optimism about the future, citing robust order flows and growing demand driven by cloud and AI technologies.

In a leadership update, Ciena named Lawton W. Fitt as the new independent Chair of its Board of Directors, effective December 11, 2024. Patrick H. Nettles, the outgoing Executive Chair, will retire after the company’s 2025 Annual Meeting of Stockholders, remaining on the Board temporarily to assist with the leadership transition.

Technology

AI Delays Weigh on Adobe as Revenue Forecast Misses Expectations

Adobe’s stock is plummeting by more than 10% in premarket trading today after the company’s fiscal 2025 revenue forecast fell short of analyst estimates, raising doubts about the pace of returns from its investments in artificial intelligence.

The company projected annual revenue of $23.30 billion to $23.55 billion, below the $23.78 billion expected by analysts.

Analysts are pointing out that Adobe's progress with generative AI tools, while on track, lacks clear monetization metrics, making investors hesitant, and are noting a disconnect between the company’s internal optimism and investor sentiment.

Adobe has been ramping up its AI offerings, including tools for image and video generation, to counter rising competition from startups like Stability AI and Midjourney, as well as OpenAI’s Sora technology. Despite its advancements, investor confidence has been dampened by the absence of immediate financial clarity.

Overall Adobe’s stock is down about 8% year-to-date, significantly underperforming the S&P 500, which has gained 27.6% in the same period.

Semiconductors

Apple Targets AI Hardware Space with New Chip Project Baltra

Apple is collaborating with Broadcom to create its first AI-focused server chip, according to reports. The project, internally code-named "Baltra," is part of Apple’s strategy to enhance its capabilities in artificial intelligence processing and reduce reliance on Nvidia’s costly and scarce GPUs.

The chip is expected to enter mass production by 2026, leveraging Taiwan Semiconductor Manufacturing Co.’s advanced N3P process. Broadcom, already a key Apple partner through a multi-billion-dollar 5G component deal, saw its stock rise 6.63% yesterday following the news.

Apple joins major tech firms like Google in the push to design in-house AI chips. While Apple has successfully developed its M-series processors for Mac devices, Nvidia remains the dominant player in AI processing. Few companies have managed to significantly reduce their dependence on Nvidia, with Google being a notable exception.

This collaboration highlights the growing demand for custom AI chips, a market that could reach $45 billion by 2028. Broadcom and rival Marvell are expected to compete for leadership in this lucrative sector. Broadcom has already capitalized on the AI surge, with its shares rising 54% this year after nearly doubling in 2023.

The AI chip development aligns with Apple’s broader ambition to power advanced AI features on its devices, as announced at its annual developer conference in June. Both Apple and Broadcom have declined to comment on the report.

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Palisade Bio, Inc. [PALI] - Last Close: $1.40

Palisade Bio's stock is surging by more than 120% in premarket trade today due to positive preliminary results from its Phase 1 clinical study of PALI-2108, a novel drug for moderate-to-severe ulcerative colitis (UC).

The study showed that PALI-2108 was safe and well-tolerated at three different doses, with no treatment-related adverse events, serious adverse events, or lab abnormalities among participants.

Additionally, the drug appears to perform as designed, with delayed release and colonic bioactivation, indicating that it could effectively target inflammation in the colon.

The promising safety profile has paved the way for further studies, including food interaction analysis and multiple-dose evaluations in UC patients.

Hut 8 Corp. [HUT] - Last Close: $26.69

Hut 8's stock is rising in premarket trading due to rumors of a potential partnership with Meta to build a $12 billion AI data center in Louisiana.

Speculation suggests that Hut 8's expertise in high-performance computing, drawn from its Bitcoin mining operations, could be leveraged for the energy-intensive demands of AI data processing.

Meta is also planning another $10 billion AI facility in the same state, further fueling optimism about Hut 8's involvement in these cutting-edge projects.

While neither company has confirmed the collaboration, the possibility has sparked investor excitement, especially given Hut 8's strong financial position with 9,122 BTC holdings and a recently announced $500 million funding initiative.

This rumor aligns with market trends where Bitcoin miners are exploring diversification into AI and cloud computing.

Liquidity Services, Inc. [LQDT] - Last Close: $25.75

Liquidity Services' stock is climbing 12% in premarket trading due to its strong Q4 earnings results and positive outlook for the next quarter.

The company’s earnings of $0.32 per share is $0.04 more than Wall Street estimates, and revenue of $106.9 million, a 33.7% increase year-over-year, is higher than expectations by $13.85 million.

Additionally, Gross Merchandise Volume (GMV) is up 14% to $361 million, highlighting robust business activity.

Liquidity Services also has $155.5 million in cash and zero financial debt, showcasing financial stability.

For Q1 FY25, the company is providing an optimistic outlook, projecting GMV between $350 million and $385 million and non-GAAP earnings per share between $0.18 and $0.26, which is in line with market expectations.

Technology

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Everything Else

• Nvidia called social media claims of reduced China shipments false and misleading.

• Zuckerberg seeks influence over tech policy with a $1 million Meta donation to the Trump fund.

• GM’s decision to ditch Cruise impacts Microsoft with an impairment charge of $800M.

• The FBI and U.S. Attorney announced charges against prominent real estate broker Alexander Brothers for alleged sexual assaults.

• Banks push back as the Biden administration targets overdraft fees with new regulations.

• The Swiss National Bank surprised markets with its largest rate cut in nearly a decade.

• Musk’s ties to Trump fuel Tesla’s surge to an all-time high, boosting investor confidence.

That’s all for today. Thank you for reading. If you have any feedback, please reply to this email.

Best Regards,

— Adam Garcia
Elite Trade Club

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